How Much More Money Will You Need to Close a Home?

Your down payment probably won’t be the only money you’ll need when buying a home. Closing costs, prepaid expenses, adjustments, and other transaction-related charges can add thousands of dollars to the amount needed before you receive the keys. Knowing what may be included — and when you’ll learn the actual numbers — can help you plan ahead instead of being surprised near closing day.

As a general planning guideline, buyer closing costs often run about 2% to 5% of the purchase price, although the actual amount can vary significantly based on your loan, property, location, service providers, and transaction. Those costs are typically in addition to your down payment. Some of the expenses you may encounter include:

MORTGAGE-RELATED COSTS

  • Loan origination or underwriting fees, when charged
  • Application or credit-related fees, when charged
  • Appraisal fee
  • Discount points, if you choose to pay them to obtain a particular interest rate
  • Upfront mortgage insurance or guarantee fees when applicable to the loan program
  • Prepaid interest

PROPERTY & PREPAID COSTS

  • Property-tax adjustments or initial escrow deposits
  • Homeowners insurance premiums or escrow deposits
  • HOA or condominium-related charges when applicable
  • Survey costs when required or requested
  • Other property-specific charges or assessments

TITLE, RECORDING & SETTLEMENT COSTS

  • Title search and title insurance, depending on local practice and the transaction
  • Recording fees
  • Transfer taxes where applicable
  • Settlement, escrow, closing-agent, or attorney fees where applicable

OTHER UPFRONT BUYING COSTS
Not every expense connected with buying a home appears as a closing cost. Inspections, specialized evaluations, moving expenses, deposits, immediate repairs, utility setup, and other costs may be paid before or after closing. Planning for these separately can keep your closing funds from absorbing every dollar you have available.

POSSIBLE BUYER-BROKER COMPENSATION
If you’re working with a buyer’s agent, your written buyer agreement should explain the services being provided and how the brokerage will be compensated. Brokerage compensation is negotiable. Depending on your agreement and the transaction, some or all of that compensation may be paid by you, negotiated as part of the purchase transaction, or paid from another agreed source. Make sure you understand your potential obligation before making an offer so it can be included in your cash-planning decisions.

For an early estimate, you can use a closing-cost calculator such as the one available at NerdWallet. Once you apply for a mortgage, your lender will provide a Loan Estimate showing the projected loan terms and estimated closing costs. For most mortgage loans covered by federal disclosure rules, that Loan Estimate must generally be provided within three business days after the lender receives your application.

Later, you’ll receive a Closing Disclosure, generally at least three business days before closing. Review it carefully and compare it with your Loan Estimate. The “Cash to Close” section brings together the amount you’re expected to provide after accounting for items such as your down payment, closing costs, deposits already paid, seller or lender credits, and other adjustments.

Your required down payment depends on the type of financing you choose, your qualifications, and the loan program. Some eligible programs may require little or no down payment, while other buyers choose or are required to put substantially more down. Your lender can explain the options available to you and how each one affects your total cash needed for closing.

IMPORTANT: Real estate wire fraud is a serious risk. Never rely solely on wiring instructions received by email or text. Before sending funds, independently verify the instructions with the title, escrow, settlement, or closing professional using a trusted phone number you obtained separately. If instructions change unexpectedly, stop and verify them before sending any money.

When the time comes to transfer your closing funds, follow the specific instructions provided by your lender and closing professional regarding the acceptable method and timing of payment.

And don’t plan your savings down to the last dollar. Moving, meals, utility setup, supplies, and those first few unexpected purchases in a new home can arrive quickly. You can find more ideas in this guide to moving supplies.

If you have questions about which costs may apply to your purchase, I’ll be happy to help you understand what to expect and which questions to ask your lender or closing professional.